The highly anticipated arrival of perpetual futures in the U.S. market has sent ripples of excitement through the trading community, with some firms already experiencing significant trading volumes. Kalshi's perpetual futures, for instance, reached $1 billion in trading volume within a week of launch, prompting the exchange to seek regulatory approval for contracts tied to gold and silver. These contracts, often referred to as 'perps,' are similar to standard futures contracts but lack an expiration date, eliminating the need for traders to close or roll over positions.
Instead, periodic funding payments ensure the contract's price remains aligned with the underlying asset. With Bank of America estimating annual perpetual futures volume at approximately $90 trillion, it's clear that this product has become a staple of global crypto trading. The Commodity Futures Trading Commission (CFTC) has given Kalshi and Coinbase the green light to offer regulated perpetual futures in the U.S., marking a significant milestone in the product's journey. However, inside Wall Street, the interest in perps is tempered by caution.
While discussions about perps are becoming more frequent, large financial institutions are hesitant to commit to major launches, opting instead to study the products and wait for the market to mature. Proprietary trading firms, market makers, and newer clearing firms are expected to be the first movers, as they are more agile and willing to accept operational risks.
The slow adoption by big banks can be attributed to stricter capital rules, client obligations, and reputational risks, which make it challenging for them to justify the investment in compliance, clearing, and risk systems for a relatively new market. Despite the cautious approach, the potential use cases for perps extend beyond speculation, as they could help traders manage weekend risk and provide a source of price discovery. A liquid 24-hour perpetual market could enable firms to adjust positions in real-time and use weekend prices to estimate where traditional futures may reopen. However, the lack of depth in the market and regulatory uncertainties, such as the classification of perpetual contracts as futures or swaps, are significant hurdles that need to be addressed.
As the market continues to evolve, it's likely that the debate surrounding perps will become increasingly competitive, with incumbent exchanges potentially challenging the regulatory treatment of these contracts. For now, Wall Street's view on perps is cautious, with trading firms, regulators, and exchanges adopting a wait-and-see approach, waiting for the rules, liquidity, and infrastructure to catch up.